The enterprise must control wealth producing resources to discharge its purpose of creating a customer. It therefore, has the function of utilizing these resources productively. This is the administrative function of business. In its economic aspect it is called productivity.
Everybody these few years has been talking productivity. That has greater productivity better utilization of resources is both the key standard of living and the result of business activity is not news. But we actually know very little about productivity; we are indeed not yet able to measure it.
Productivity means that balance between all factors of production that will give the greatest output for the smallest effort. This is quite a different thing from productivity per worker or per hour of work; it is at best distantly and vaguely reflected in these traditional standards.
For these standards still stand on the eighteenth-century superstition that manual; labor is, in the last resort, the only productive resource, manual work the only ‘effort’. They still express the mechanistic fallacy of Marx, to the permanent disability of Marxian economies, was the last important dupe that all human achievement could eventually be measured in units of muscle effort. But if we know one thing it is that increased productivity, in a modern economy, is never achieved by muscle effort. It is, in fact never achieved by the laborer. It is always the result of doing away with muscle effort, of substituting something else for the laborer. One of these substitutes is, of course, capital, that is mechanical energy.
At least as important but unexplored is the increase in productivity achieved by replacing manual labor, whether skilled or unskilled by educated, analytical, theoretical personnel – the replacement of “labor” by managers, technicians and professionals, the substitution of “planning” for “working” Obviously this substitution must take place before capital equipment is installed to replace man’s animal energy; for someone must plan and design the equipment – a conceptual, theoretical and analytical task. In fact, a little reflection will show that the “rate of capital formation” to which the economists give so much attention is a secondary factor. The basic factor in an economy’s development must be the rate of “brain formation,” the rate at which a country produces people with imagination and vision, education, theoretical and analytical skill.
The planning design and installation of capital equipment is also only a part of the increase in productivity through the substitution of “brain” for “brawn.” At least as important is the contribution made through the direct change of the character of work from one requiring the manual labor of many people, skilled and unskilled, to one requiring the theoretical analysis and conceptual planning of men of vision and education without any investment in capital equipment whatsoever.